the one that got away

imgresI was at a dinner this past week with a group of angel investors.  A really great group of people.  Most of them were entrepreneurs before they became investors so their outlook is interesting.

We went around the table and introduced ourselves, talked a bit about what we are interested in and then were to talk about the one that got away.  The investment that we should not have passed on.

I am not one to dwell on the past.  I have been asked in interviews the classic question which is “if you could change something about your past or have done something differently what would that be?”  I am so not a fan of this question because who knows where my head was at then.  Why I made the decision I did.  I just know that at that time it made sense.  Just like investments that I choose not to participate in or opt not to meet with there is a reason for it.  Timing is everything.

What I talked about instead was the investment that was a huge failure and how much I learned from the experience.  That is significant.  You learn a lot more about your failures than you do about your successes.  I think about those failures much more than the successes.  Successes tend to be the perfect storm.  A great entrepreneur, a great idea, a great group of investors, a great team and perfect timing.  I know of many companies who have had incredible success and I am not sure how some of them actually succeeded.

When companies fail there is tons to learn.  I learn so much each time I make a mistake.  I get better from those missteps.  I can look back and think about why I made that investment, what I missed, why I chose to ignore the red flag, what could have been done to perhaps help the company go in a different direction.  More than likely it is about recognizing more and that brings value to me and hopefully my investments.

Comments (Archived):

  1. Ella Dyer

    Thanks for giving us permission to learn!

  2. William Mougayar

    Failing to invest and failing as a startup are 2 different things. Of course, sometimes they are related. But I see a 2X2 matrix here. 4 different outcomes. My point is you learn in each situation, whether you invested or not, and whether the startup succeeds or not.Sometimes you learn just by observing closely and watching others make mistakes or how they avoid them.

    1. Gotham Gal

      Everyone’s failures are different even if you were invested in the same company or on the same startup team. All experiences to learn from

      1. William Mougayar

        OK, but what emphasize learnings from failure? What I’m saying is you can equally learn from:1. Failures2. Successes3. Lessons (observation, analysis, self-awareness)

        1. Gotham Gal

          Absolutely.Most people are insanely afraid of failure. Everything is a learning moment

        2. awaldstein

          Gonna have to disagree with you William.The exultation of wining where economics change your life is certainly a learning experience. I’ve had a few.The pain of losing. Of telling friends and family that invested that it just failed and dealing with the next few Thanksgiving dinners. Not making payroll. Laying off the team is different. I’ve had these as well.Don’t know your personal experiences with these ups and downs.I can tell you that having lived through a few of these on each side, ‘equally’ is simply not how they play out.

          1. William Mougayar

            maybe we’re splitting hair on this. i have been on all sides of these situations. my comment is simply that there are learnings from each. the impact may be different, but the learnings are equally useful.

          2. awaldstein

            Sorry to be so strident on this one but they are not equal.I don’t know that you personally have funded and raised F & F, then some institutional then shuttered it all at a whooping and painful loss. Told your family and friends that it failed.If you have, you agree with me. If you haven’t what I say is the truth here.You learn from winning and loosing. The pain of losing is more formative and more long lasting and with more clarity than winning brings.I’m right on this.

    2. lisa hickey

      To add onto your original comment @wmoug:disqus when you are wrong about investing in start up, it is because you were wrong about how good an idea it was. Certainly there are other factors besides the idea that go into the “yes” or “no” — how good a team, how much money, how much proof of concept is already in place. But, say everything else was optimal — the team was great, there was a clear market opportunity, you could see how they would be able to raise enough in the first round, the numbers all made sense — then it seems to me a “no” at that stage is because the idea wasn’t compelling enough for that particular investor. And learning to separate out why you said “no” to any particular idea is one way of learning from your failures. On Fred’s blog, we had talked about predicting the future. And I had said almost the same thing Joanne said — that when predicting the future, I’m much more inclined to look at where I was totally wrong than to pat myself on the back when I got it right. And the example was “camera phones” — the reason I got it wrong was because I thought a picture was just a picture and not a means of communication. It seemed a disconnect to me, to stick a camera in a phone, especially when the quality was so poor, until I realized that because a photo was really another way of communicating was in fact a natural addition to the phone. I should have been able to anticipate its success if I had thought about it differently at the outset. And I believe I’m smarter about predicting future technologies with that framework of “why I failed to see the cameraphone” than I used to be.To Joanne’s point about learning from the start-up itself that failed — failing in that way is the only way you are going learn about the “everything else” that goes into an investment decision. How else would you know the potential pitfalls along the way? How else would you learn the right questions to ask the team? How else would see see the weaknesses in the construct? You have to see the failure all the way through to understand how to help prevent it in future endeavors. That is how you develop intuition. Repeatedly looking at results and asking “why”.In fact, I remember reading about a specific type of learning—I thought it was called “object learning” but I can’t find the reference—that says that some people can ONLY learn when they actually do something and make a mistake at it. They simply can’t learn otherwise. That was such a big “aha” for me. Not only is it “Ok” to fail, but it is often a necessary part of success, which I see as Joanne’s whole point.

  3. AG

    So interesting! I was in a class yesterday, the professor is a former KKR partner. He asked a group of us what we’d ask Kravis if we were looking to possibly invest with him. Everyone asked the typical questions: Why KKR? Why now? Succession planning? His answer: ask questions that tell you something. Start with failures.

  4. LE

    why I chose to ignore the red flagA big theme on Oprah (for anyone who has watched Oprah) for women in particular (since Oprah primarily catered to women) was listening to the voice in your head. Which in Oprah’s opinion is apparently a fail safe sign. After the fact monday morning style at least.The problem with this thinking though is that you will always have (or should have) a voice in your head giving you doubts about something. So when something goes wrong it’s natural to look back and think “boy I should have know and listened to the voice in my head”. But what is happening is you are forgetting the times that you didn’t listen to the voice and the right thing happened.Gut is something that comes into play both with relationships and investing. There is a tendency to pattern match with past behavior and automatically throw out any new relationship that matches a previous bad pattern. The problem is, that isn’t always correct and it totally depends on the nuance of each situation.I’m am sure each of us (I know I have) have had situations in the past where we’ve ignored our gut to our detriment and also where we’ve ignored out gut and things have turned out fine. Most of the time in the case where I’ve ignored my gut (and things have turned out fine) is when I might have been overreacting to some input that tells me “stay away” instead of just “be careful and uncover more information before you jump to conclusions”.

  5. LE

    I am not one to dwell on the past. I have been asked in interviews the classic question which is “if you could change something about your past or have done something differently what would that be?” I am so not a fan of this question because who knows where my head was at then. Why I made the decision I did. I just know that at that time it made sense.100% the way that I think as well. The way you look at the world at a particular point in time matters greatly and it’s not healthy or helpful to look back and beat yourself up and think that you made the wrong decision because now you have more and vastly different information. The important thing is that you think and give careful consideration and believe you have a reason for doing what you are doing.I always give the example of how business writers love to kick around large companies that passed on what now are obvious investments. An example might be “see Hewlett Packard could have listened to Wozniak and they’d be at the top of the PC business from the start”. The problem with this thinking is that you don’t know the other 1000 investments that HP (or pick any company) passed on that never worked out. Not to mention who knows how Wozniak even pitched the idea at the time or how he was viewed within that company.

  6. Brandon Burns

    You can learn from the ones that got away, too, by looking at how you were thinking when you made that decision and seeing how you could have thought about it differently.This dialogue btwn Paul Graham and Fred re: USV passing on AirBnB:

    1. Brandon Burns

      i think its also probably worth noting that its not Fred who actually wanted to look back at what he thought, then. He resisted it, too. But I’m glad Paul Graham dug up the convo and shared — sometimes forcing an unwanted look into the mirror is good!

  7. awaldstein

    Investments that fail are learning experiences certainly.As investors, at least the ones I do, are top down experiences. Winning is great, loosing is not life changing.Failing as an entrepreneur (I have some experience on both sides of this) is a different animal.The pain is deeper, the loss in time and economics and reputation, seriously a game changer to come to grips with. True at whatever stage of life you do this.I wrote this last year on failure that you might find interesting.Straight talk on winning and losing

    1. Gotham Gal

      it is definitely more painful for an entrepreneur. that entrepreneur is full on in on that one game. an investor is in many.great post